Date: 20020614
Docket: A-560-00
Ottawa, Ontario, June 14, 2002
CORAM: LÉTOURNEAU J.A.
NADONJ.A.
PELLETIERJ.A.
BETWEEN:
ANDRÉ GAMACHE
Applicant
and
HER MAJESTY THE QUEEN
Respondent
JUDGMENT
The application for judicial review is dismissed without costs.
Gilles Létourneau
J.A.
Certified true translation
S. Debbané, LLB
Date: 20020614
Docket: A-560-00
Neutral Citation: 2002 FCA 254
CORAM: LÉTOURNEAU J.A.
NADONJ.A.
PELLETIERJ.A.
BETWEEN:
ANDRÉ GAMACHE
Applicant
and
HER MAJESTY THE QUEEN
Respondent
Hearing held at Québec, Quebec, on June 6, 2002.
Judgment delivered at Ottawa, Ontario, on June 14, 2002.
REASONS FOR JUDGMENT: LÉTOURNEAU J.A.
CONCURRED IN BY: NADON J.A.
PELLETIER J.A.
Date: 20020614
Docket: A-560-00
Neutral Citation: 2002 FCA 254
CORAM: LÉTOURNEAU J.A.
NADONJ.A.
PELLETIERJ.A.
BETWEEN:
ANDRÉ GAMACHE
Applicant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
[1] The applicant had converted his private residence into a bed and breakfast, thereby operating a part of the property for commercial purposes. Intending to claim all of the Goods and Services Tax as an input tax credit (ITC), he contended that Judge Tardif of the Tax Court of Canada erred when he concluded that over 90% of his property was not actually for commercial use.
[2] Under the Excise Tax Act, R.S.C., 1985, c. E-15, s. 141(1) and the government's policy statement relating to the Output Based Method For Input Tax Credit Allocation, the use of a property for commercial activities must represent or exceed 90% of the total use of the property in order to obtain a full refund of the tax paid as an ITC: see GST/HST Memoranda Series, Chapter 19, Special Sectors: Real Property, rule 101. Rules 100 and 101 of that method for allocation have been reproduced:
Input tax credits
100. The determination of the extent to which the property is acquired for use in commercial activities could be based, for example, upon total revenues, production, floor space or other methods, as long as the apportionment is fair and reasonable in the circumstances and is used consistently throughout the year.
101. ITCs are normally directly proportional where the use of capital real property in commercial activities is more than 10% and less than 90% of total use. No ITCs are allowed where such use is 10% or less of total use, while an ITC of 100% may be claimed if use in commercial activities is 90% or more of total use.
[3] The following three paragraphs summarize the essence of the Tax Court of Canada's decision with respect to the burden of proof that applies in this case, at the time the assessment of commercial use was made, and with respect to the substance of that assessment:
The burden of proof was on the appellant, who, in order to succeed, had to show on a preponderance of evidence that over 90 percent of his building was actually for commercial use.
In actual fact, the appellant did not confirm or substantiate his claims with figures that only he possessed, that is to say, for example, by means of his reservation book, a breakdown of his income, etc. To want, imagine and implement a project which it is hoped will be more than 90 percent commercial is not sufficient for it to be so in actual fact.
The Court acknowledges the appellant's noble intention of eventually implementing a plan under which operations would be carried on year-round through the addition of various services and multiple interest centres. However, this is not the question. This Court must essentially decide whether, at the time of the assessment of it, the business served a commercial purpose in a proportion of over 90 percent. The evidence adduced does not at all lead to this conclusion, but rather establishes that the
respondent's assessment was reasonable, realistic and consistent with the condition of the premises and their potential at the time it was conducted.
[4] After examining the premises and each of its components, two employees from Revenu Québec determined that 50% of the building was used for commercial activities, which entitled the applicant to claim half of the tax. The audit technicians from Revenu Québec had ruled out the income-based approach as a method of assessment since it would have penalized the applicant who had still not actually begun operating his business. Rather, they chose the method of direct apportionment based on the surface, which essentially consists in measuring the area of the property that is private, therefore residential; the area that is commercial, that is, reserved for public use; and the areas that are mixed, in other words, while being accessible to the public, continue to be used by the owner of the property. In the case of mixed areas, the assessment must determine the percentage of the area for private or personal use. As we can imagine, it is not always an easy task: see Applicant's Record, transcript of evidence, page 173. The applicant did not challenge the method of assessment selected, only its results and scope.
[5] Relying on rule 98 of the method for allocation, the applicant contended before us that he had claimed the refund of the tax only on the improvement that had been made to the property and not, as the method used was applied, on the operation of the property:
98. Input tax credits (ITCs) may be claimed by a registered person with respect to GST/HST paid or payable by the person in respect of the costs of acquiring, importing, bringing into a participating province, improving, leasing or operating real property to the extent that the real property is for use or supply in the course of commercial activities.
(Emphasis added)
He submitted that if the method had consisted in gauging the commercial use of the improvement, the assessors would have determined that commercial use was 100%.
[6] I do not think that the assessors can be criticized for having assessed and quantified the operation of the property as a whole, since, for one thing, the improvements made by the applicant were substantial and affected the entire property. For another, the evidence shows that the applicant is also using a part of the improvements for personal and, therefore, non- commercial uses. In the circumstances, it was fair for the two parties to have considered the operation of the property and to have differentiated the area used for commercial activities from the area used for personal activities.
[7] After examining the affidavits and the transcript of evidence, I am in agreement with Judge Tardif that there was no need to intervene to increase the percentage of commercial use determined by the assessors from Revenu Québec.
[8] For these reasons, I would dismiss the application for judicial review. Counsel for the respondent in agreement, I would not allow any costs.
Gilles Létourneau
J.A.
"I concur.
Marc Nadon J.A."
"I concur.
J.D. Denis Pelletier J.A."
Certified true translation
S. Debbané, LLB
FEDERAL COURT OF APPEAL
SOLICITORS OF RECORD
COURT FILE NO.: A-560-00
STYLE OF CAUSE: André Gamache v. Her Majesty the Queen
PLACE OF HEARING: Québec, Quebec
DATE OF HEARING: June 6, 2002
REASONS FOR JUDGMENT: Létourneau J.A.
CONCURRED IN BY: Nadon J.A.
Pelletier J.A.
DATED: June 14, 2002
APPEARANCES:
ANDRÉ GAMACHE FOR THE APPLICANT
LOUIS CLICHE FOR THE RESPONDENT
SOLICITORS OF RECORD:
ANDRÉ GAMACHE FOR THE APPLICANT
1046, rue du Phare
Pointe-au-Père, Quebec
G5M lL8
VEILLETTE & ASSOCIÉS FOR THE RESPONDENT
Ministère du revenu du Québec
3800, rue de Marly, section 528
Sainte-Foy, Quebec
G1X 4A5